Four ways that VCs evaluate startup pitches

By David Frankel

VCs evaluate startup pitches along four dimensions:

⚙️ Business/Team: Are the founders/model/metrics strong?

📣 Pitch: Is the story compelling?

💵 Deal: Are the terms attractive?

👂Audience: Does the VC know/like this space?

So, how can founders improve their odds?

The best scenario is strength in all aspects.

VCs would love a steady stream of thriving businesses led by world-class teams, that slot into their understanding of the startup world, that are pitched impeccably with friendly deal terms.

These are few and far between.

Early-stage deals tend to look more like this; solid across all dimensions but not exceptional in any of them:

Startups can get funded this way, but founders are in a stronger position if they can optimize across one or more measures.

The most common optimization is a compelling pitch, often delivered by a repeat founder working in a hot category, to a VC specializing in that area. These deals can be done at very high prices on the strength of a slide deck — but can also be false positives.

Surprisingly, the inverse, which represents strong businesses offering good terms, often struggle to fundraise. This is especially true if the startup is an out-of-favor sector and doesn’t have a commercially savvy co-founder who thrives in sales mode.

So back to the original question — How should entrepreneurs try to engineer their deals given these constraints?

In the best-case scenario, you’ll be operating profitably, and you’ll have a choice to focus on growing your business without the distractions of fundraising.

Achieving financial sustainability provides maximum flexibility and is a powerful strategy.

However, most founders don’t buy into the bootstrapping ethos. If you *need* to raise money in the next 12 months, it’s unlikely that you’ll post undeniably strong growth metrics in that period and should probably prioritize another path.

NB: The strength of the team is among, if not the most important aspect of any deal. While it’s possible to workshop your pitch, grow your business, or sweeten deal terms, the DNA of the founding team is almost impossible to change. Choose your co-founders wisely!

Honing your narrative is the highest probability bet at raising money quickly. Investing heavily in storytelling has a great ROI, and there are many excellent resources sharing best practices, including this post:

This is the most underrated area to optimize. Many founders chase the VCs with the largest social followings instead of doing the work to find those with the most relevant expertise.

Alan Kay once said, “a change of perspective is worth 80 IQ points,” and I’d offer an analogy that finding a VC with a prepared mind is worth an extra $5M in valuation and reduces time to term sheet by 90%.

Look carefully!

We’re in an environment where founders with solid startups can request and obtain massive valuations. You’d be amazed at how much VC interest founders can gain by framing your raise at ~25% below market rates.

I’m not encouraging founders to undervalue their startups. Deals don’t get done because of bargain-basement pricing. Still, the appearance of “value” often catalyzes term sheets and can often kick off a bidding process that brings you back to or above market rates.

Every startup is unique, and there are many possible permutations of viable startup pitches.

This post is just a summary of the various levers that founders can pull to persuade potential investors — it’s up to you to find the right balance.

Our mission is to be the most aligned VC for founders at seed. #ProudInvestor in @Uber @TheTradeDeskinc @Buzzfeed @Cruise @Diaandco @PillPack @SeatGeek & more.